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FTSE rebounds as China growth provides boost

FTSE rebounds as China growth provides boost

The FTSE 100 has rallied after fresh data from China showed the world’s second largest economy grew more quickly than expected in the second quarter of the year.

The UK blue-chip index added 75 points, or 0.9%, to 6,768 points on news China’s gross domestic product had grown by 7.5% in the three months to the end of June. Investors had been expecting as 7.4% rise.

The Chinese data helped to inject some optimism into the FTSE 100, which ended yesterday’s session down after comments from US Federal Reserve boss Janet Yellen about stretched valuations of some shares prompted falls on global stock markets. The FTSE had already been pegged back by surprisingly high UK inflation figures that raised the prospect of a rise in interest rates in November.

Fears of a rate rise this year were dampened however by labour market data released this morning showing employee pay growth at an all-time low despite record job creation and plunging unemployment.

Employment rose 929,00 in the year to May, the largest jump since data was first collected in 1971, with unemployment falling from 6.6% in the three months to April to 6.5% in the three months to May. However, pay rose just 0.7% on a year ago in the three months to May, down from 0.9% in the three months to April.

'Policymakers will be reluctant to put the brakes on the economic boom that we are seeing at the moment, fearing weak pay growth means households will struggle to service higher borrowing costs if interest rates rise, potentially causing the recovery to stall,' said Chris Williamson, chief economist at Markit.

Meggitt (MGGT) was the biggest riser, with shares soaring 9.8% to 538p as the Daily Mail reported rumours the aircraft parts manufacturer could be the subject of a bid from US group United Technologies (UTX.N) valuing it at 625p per share.

EasyJet (EZJ) was another big riser, jumping 3.7% to £13.20, as investors piled into the airline ahead of its third quarter trading update, hoping to catch a recovery after a 30% fall in the shares in the last three months. ‘Whilst a change in regulation could see airlines paying more compensation for delayed flights, the recent profit warnings by Lufthansa (LHAG.DE) and Air France (AIRF.PA) are likely to be isolated incidents,’ said Marc Kimsey, trader at Accendo Markets. ‘Traffic numbers have increased every monthly in 2014 and institutional brokers expect a strong second half to the year – the fasten seatbelt sign is now off.’

Chip manufacturer ARM Holdings (ARM) added 20.5p, or 2.5%, to 854p after brokers at FinnCap raised the stock from ‘hold’ to ‘buy’.

Miners also performed well, helped by the good news from top metals consumer China. Rio Tinto (RIO) received a further boost from a solid performance update. Analysts at Investec welcomed the figures. ‘A positive quarter for the company, with its iron ore operations racing along, offsetting the reduced iron ore price – full steam ahead and damn the icebergs!’ they said.

Glenore (GLEN) added 4.5p, or 1.3% to 350.9p, while BHP Billiton (BLT) rose 22.5p, or 1.1%, to £20.15. Tullow Oil (TLW) rose 7p, or 0.9%, to 797p, despite announcing it had abandoned an exploration well in Ethiopia after failing to find commercial oil.

The news from China, coupled with separate data from the country showing implied oil demand from the country had reached its highest level in 17 months, also helped lift the oil price to $106.4 per barrel.

British Land (BLND) rose 16p, or 2.3%, to 707.5p after announcing strong rental growth in its first quarter trading statement.  

Shire (SHP) was the biggest faller, dropping 2.2% to £47.57, as the pharmaceutical group pared some of the gains made after announcing it would recommend a takeover bid from US rival AbbVie (ABBV.K) to shareholders.

Imperial Tobacco (IMT) meanwhile shed 34p, or 1.3%, to £26.03 as US rival Reynolds American (RAI.N) sealed a deal to buy Lorillard (LO.N). Imperial will acquire the Winston, Kool, Salem and Maverick cigarette brands as well as blu e-cigarettes for $7.1 billion as  part of the US deal. Imperial’s acquisition is meant to address potential anti-competitive objections to the Reynolds-Lorillard deal.

Also amongst the small number of FTSE 100 fallers was Royal Mail (RMG), down 0.8% at 485p after the postal group notified investors the French competition authority had alleged anti-competitive activity in the parcels market. The French arm of Royal Mail’s General Logistics Systems (GLS) has a 5.6% share of the French parcels market.

Royal Mail said a potential fine could be material. French antitrust law allows a maximum fine of 10% of worldwide turnover, which in GLS’s case would be £160 million in a worst-case scenario.

‘In our view, this maximum fine is relatively insignificant for RMG, at around 3% of market capitalisation,’  said analysts at Espirito Santo Investment Bank. ‘We therefore reiterate our neutral recommendation and fair value of 505p.’

Outside the FTSE 100, ‘small cap’ stock Speedy Hire (SDY) rose 7.5% to 56.4p after a strong quarter, with revenue up 15.7% year-on-year for the construction equipment rental company.

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Profile: The opportunity set that attracted Brett Williams to wealth management

Profile: The opportunity set that attracted Brett Williams to wealth management

Brett Williams is best known for helping to build some of the biggest platforms in the IFA market.He made the move over to wealth management to head SEI’s UK business earlier this year in the belief that this is where the best opportunities now lie.

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